Earnings Preview: Microsoft

| About: Microsoft Corporation (MSFT)

Microsoft (NASDAQ:MSFT) is expected to report Q4 earnings after the market close on Thursday, July 19, with a conference call scheduled for 5:30 pm ET.


The consensus estimate, excluding the aQuantive charge and certain other items, is expected to be 62c for EPS and $18.13B for revenue, according to First Call. A flopped acquisition may lump Microsoft with the first loss in its 26-year history as a public company. The Q4 numbers will include a $6.2B charge to reflect that Microsoft's 2007 acquisition of online ad service aQuantive hasn't yielded the returns envisioned by management. Analysts say that the non-cash charge is so large that it could wipe out Microsoft's earnings from April through June. But, alas, Microsoft's fortunes are tied to the October release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995. Its long-awaited Windows 8 operating system will go on sale Oct. 26 and its Office 2013 will be available later this year as well. The high hopes for Windows 8 are the main reason Microsoft's stock has climbed about 17% this year.

Analyst Views

ThinkEquity is expecting mostly in-line Q4 results. The firm believes Microsoft's Windows business remains lackluster given the continued sluggish growth -- of flat to low-single digits -- in the PC market. ThinkEquity believes the company's enterprise and small business segments -- representing 75%+ of its revenue and highly annuity-based -- remains solid and will likely drive continued solid margin expansion and earnings growth for the company. Gartner and IDC commented that Ultrabook sales were tracking below their expectations and had little impact on rejuvenating the PC market. ThinkEquity believes this could be a sign that the PC and non-PC market remains price-sensitive. Hence, in the firm's view, Windows 8 needs to be priced aggressively, especially its tablet version, so that Windows tablets could be offered in the low-end of the market at $300-$500 per device. ThinkEquity thinks sales of high-priced Windows tablets could be lackluster and could also directly compete against Apple's (NASDAQ:AAPL) iPad tablets. ThinkEquity believe Microsoft shares are fairly valued.